6.3. SR 07-10-2000City of
River
MEMORANDUM
Item #6.3.
TO:
FROM:
DATE:
Mayor and Council
Lori Johnson, Finance Director
July 10, 2000
SUBJECT: Discuss Fire Relief Association Benefit Request for 2001
and 2000 City Contribution
At the June 14, 2000, Elk River Fire Relief Association meeting, the trustees
discussed the 2001 benefit amount and are requesting that the City Council
consider increasing the per year benefit from $3,370 to $3,575 per year of
service. As you may recall, the Council must take action on the Relief
Association request before August 1, 2000. The benefit amount can only be
increased if the Council approves the increase or the Relief Association is
funded at 110%. The requested increase requires Council approval.
Representatives from the Elk River Fire Relief Association will be present at
the Council meeting to discuss the requested increase. Additionally, attached
is a memo from Rob Dreissig, President of the Relief Association, providing
some historical information on the Relief Association as well as current
investment information. As we have discussed previously, the Relief
Association has significantly changed its investment portfolio and most of the
funds are now with the State Board of Investment.
Also attached are Schedules I and II which are used to determine the fund
liability and municipal contribution for the requested benefit amount. The
Schedules assume a seven percent return on investments and a city
contribution of $21,350. Predicted assets at year-end are at $1,383,126 and
the associated accrued liability is $1,381,640 leaving a surplus of $1,486.
Based on the requested benefit increase, no municipal contribution is required
in 2001. However, the city has contributed in the past even though it was not
required to.
13065 Orono Parkway · P.O. Box 490 · Elk River, MN 55330 · TDD & Phone: (612) 441-7420 · Fax: (612) 441-7425
Finally, this memo does not provide detail on the city's obligations or liability
for the Relief Association because that information has been provided to all
council members previously when this item was discussed. However, please
contact me prior to the meeting if you would again like more information on
this issue.
Action Requested
The Elk River Fire Relief Association is requesting consideration of two items.
First, the City Council is asked to consider the Elk River Fire Relief
Association's request to increase the per year of service benefit amount for
2001to $3,575. Second, the Council is asked to consider approving the
budgeted retirement contribution of $22,000 to the Relief Association for 2000.
s: \ council \ firereli.doc
TO: Mayor and City Council
FROM: Robert Dreissig, President of the Elk River Fire Relief Association
Background o['the Association
The ERFD Relief Association is made up of the active paid-on-call members of the
ERFD. The purpose of the association is to provide retirement, disability and death
benefits to the members or beneficiary of members of the association.
The State of Minnesota provides the basic funding for the association through distribution
of money collected from a gross earnings tax on fire insurance premiums sold in the state.
The funds are allocated to all the departments throughout the State, based on the
population and property values in the area served by that department.
The ERFD Relief Association is directed by six trustees elected by members of the
ERFD, the Fire Chief, the City Finance Director and the Mayor. A minimum of four
meeting are held each year to oversee the management of the Association's funds.
Type of Pension Plan
The members of the Relief Association are covered by a defined benefit plan. Our plan is
the same type as the Public Employee' Retirement Association (PERA) or the teacher'
Retirement Association (TRA). The number of members and their length of service and
the value of the relief fund determine the yearly benefit level of the plan. The actuarial
studies are pertbrmed on an annual basis and presented to the members of the Association
and the City Council for their approval, and submitted to the State Auditor.
Compensation Task Force
Several years ago, a task force, made up of the Mayor at that time, the City Financial
Director, along with four fire fighters, developed a long-term compensation plan for the
fire department. The plan included an hourly wage rate for paid-on-call fire fighters based
on education and responsibility. The plan also included a scheduled yearly contribution to
The Relief Association. Prior to the compensation agreement, the City contributed to the
Association on a year-to year request.
Investments
The Association's state aid allocation and the city's contribution are invested in the
Association's Special Fund. The association has developed an investment policy
providing maximum return consistent with preservation of principal those Follows State
Statues. In 1997, the Trustees of the Association elected to invest all incoming funds with
the State Board of Investments (SBI). (1). On February 25, 1999, the trustees agreed to
revise the Special Fund Allocation section of the Association's Investment Policy to
permit greater investment in stock mutual funds. (2) Based on that change and the
opportunity to simplify record keeping, all mutual funds were sold and the proceeds were
reinvested with the SBI. At this point, all of the Special Fund will be invested in the SBI
and a large CD at the Bank of Elk River.
Proposal
The Association is requesting that the City Council approve an increase of benefits for
the year 2001 to $3575 for each year of service compared to $3370 for 2000. Starting in
1996 and continuing through 1999, the City's Audit has shown an increasingly large
surplus in the Special Fund. By the end of 1999, the surplus had grown to $174,289. (3)
The increased surplus means that the annual benefit rates have not been raised rapidly
enough in the last several years. In a business a surplus is considered favorably, but in a
retirement fund, it is poor practice because members can only receive benefits that have
been approved by Council action and will not receive additional (surplus) money that
they have earned.
Each year the Association verifies that the proposed increase can be maintained in the
future with a multi-year projection of income and costs. This year's projection indicates
sufficient new income to permit approximately a 5 percent annual increase for the next
five years.
Attachment (1)
Minnesota State Board of Investments
1999 annual Report pg. 23-27 8:29
Attachment (2)
Elk River Fire Department Relief Association Investment Policy
Section 12.1 Rev. 02/02/99
Attachment (3) Elk River Fire Department Relief Association Annual Report, 1999
Page 9, ABDO, ABDO, Eick & Meyers
ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION
ELK RIVER, MN.
REQUIRED HISTORICAL TREND INFORMATION
DECEMBER 31, 1999
Historical trend information related to the pension plan is presented here. The information is presented to
enable the reader to assess the progress made by the Relief Association in accumulating sufficient assests to
pay pension benefits as they become due.
This information is intended to help the readers of the finacial statements assess the Relief Association's
funding staus on a going-concern basis, assess progress made in accumulating assets to pay benefits when
due, and make comparisons with other relief associations.
Ne~ assets Pension
Available Benefit Percentage
For Benefits Obligation Funded
Funded/(unfunded)
Pension Benefits
Obligation
1999 $1,309,219 $1,134,930 115.4% $174,289
~- 120.~yo ~4,3~4
1998 1,390,291 1,1~,967 ,o/ ~- ~
1997 1,192,103 1,088,123 109.6% 103,980
1996 1,001,056 953,938 104.9% 47,118
1995 895,562 906,891 98.8% (11,329)
1994 759,890 779,372 91.5% (19,482)
1993 764,918 763,098 100.2% 1,820
1992 658,625 636,918 103.4% 21,707
1991 568,624 567,949 100.1% 675
1990 475,001 53,039 85.9o/o (78,038)
1989 466,410 497,085 93.8% (30,675)
Revenue by Source
City, Stye and lnve~ment Other Benefit
Other comribution Income Income Payme~s
1999 $ 82,950 $ 130,477 (0) $ ..... $291,067
1998 79,502 120,631 (1) .............
1997 90,308 103,056 (2) .............
1996 73,630 60,923 (3) .... 26,850
1995 43,754 93,246(4) ............
1994 60,526 19,402 .... 82,400
1993 57,514 48,449 2,816 .........
1992 58,590 33,450 506 .........
199l 60,907 39,373 33,295 38,000
1990 56,321 33,357 (8,374) 70,200
1989 51,297 32,358 13,672 38,500
Expenses by Source
Administrative
Expensives
$ 3,432
1,945
2,317
2,209
1,328
2,556
2,486
2,545
1,767
1,563
1,225
(0) Includes increase in market value of $91,234
(1) Includes increase in market value of $45,121
(2) Includes increase im market value of $14,468
(3) Includes increase in market value of $ 7,569
(4) Includes increase in market value of $45,354
Supplemental Investment Fund
The Supplemental Investment Fund is a multi-purpose investment
program that offers a range of investment options to state and local
public employees. The Fund serves approximately 43,000
individuals who participate in defined contribution or supplemental
retirement savings plans. On June 30, 1999, the market value of the
entire Fund was $1.65 billion.
The different participating groups
use the Supplemental Fund for a
variety of purposes:
It functions as the sole
investment manager for all
assets of the Unclassified
Employees Retirement Plan,
Public Employees Defined
Contribution Plan and Hennepin
County Supplemental
Retirement Plan.
It is one investment vehicle
offered to public employees as
part of the state's Deferred
Compensation Plan, as well as
the Individual Retirement
Account Plan and College
Supplemental Retirement Plan
offered by Minnesota State
Colleges and Universities
(MnSCU).
It serves as an external money
manager for a portion of some
local police and firefighter
retirement plans.
Fund Structure
A wide diversity of investment goals
exists among the Supplemental
Fund's participants. In order to meet
those needs, the Supplemental Fund
has been structured much like a
"family of mutual funds."
Participants may allocate their
investments among one or more
accounts that are appropriate for their
needs, within statutory requirements
and rules established by the
participating organizations.
Participation in the Supplemental
Fund is accomplished through the
purchase or sale of shares in each
account.
Fund Management
The Supplemental Fund offers seven
different investment options (See
Figure 23). The objectives, asset
allocation, management and
performance of each account in the
Fund are explained in the following
sections.
Share Values
Each account in the Supplemental
Fund establishes a share value and
participants may buy or sell shares
monthly, based on the most recent
share value.
In the Income Share Account, the
Growth Share Account, the Common
Stock Index Account, the
International Share Account and the
Bond Market Account, shares are
priced monthly based on the market
value of each account. Individuals
measure the performance of these
accounts by changes in share values,
which in turn are a function of the
income and capital appreciation (or
depreciation) generated by the
securities in the accounts.
In the Money Market Account and
the Fixed Interest Account, share
values remain constant and the
accrued interest income is credited to
the accounts through the purchase of
additional shares at predetermined
intervals.
Figure 23. Accounts in the Supplemental Investment Fund
Income Share
Growth Share
Common Stock Index
International Share
Bond Market
Money Market
Fixed In teres t
a balanced portfolio of stocks and bonds
a portfolio of actively and semi-passively
managed common stocks
a passively managed common stock portfolio
a portfolio of both actively and passively managed
non U.S. stocks'
a fixed income portfolio utilizing active and semi-
passive management
a portfolio of liquid, short-term debt securities
a portfolio of guaranteed investment contracts (GIC's)
and GIC type investments
23
Supplemental Investment Fund
The investment returns shown in this
report are calculated using a time-
weighted rate of return formula.
These returns are net of investment
management fees and transaction
costs. They do not, however, reflect
any asset-based charge or other
charge deducted by the retirement
systems to defray their own
administrative costs.
The distribution of assets in the
Supplemental Investment Fund as of
June 30, 1999 is shown by Account
in Figure 24 and by Plan in
Figure 25.
Figure 24. Composition by Account as of June 30, 1999
Income Share - 38,9%
Int'l. Share- 1.5%
Bond Market - 8.0%
Money Market - 3.4%
Fixed Interest - 5.2%
Growth Share- 19.5%
Common Stock - 23.5%
Kgure 25. Participation by Plan as of dune 30, 1999
Undassifed Retirement Plan - 15.5%
PERA Defined Contribution - 0.9%
MnSCU - 18.5%
Indiv. Relief Assoc. - 18.0%
Hennepin Co. Sup. - 7.8%
Deferred Conpens~m - 39.3%
24
Supplemental Investment Fund
t
1
t
t
!
!
!
Income Share Account
objective
The Income Share Account
resembles the Basic and Post
Reiirement Funds in terms of
investment objectives. The Account
seeks to maximize long-term
inflation-adjusted rates of return. The
Income Share Account pursues this
objective within the constraints of
protecting against adverse financial
environments and limiting short run
portfolio return volatility.
The SBI invests the Income Share
Account in a balanced portfolio of
common stocks and fixed income
securities with the following long-
team asset mix: 60% domestic
stocks, 35% bonds, 5% cash
equivalents.
Common stocks provide the potential
%r significant long-term capital
2preciation, while bonds provide
both a hedge against deflation and
the diversification needed to limit
excessive portfolio return volatility.
At the close of fiscal year 1999, the
value of the Income Share Account
was $643 million.
Management
The Income Share Account's
nvestment management structure
:ombines internal and external
management. SBI staff manage the
ixed income segment. The common
stock segment is managed externally
as part of a passively managed index
fund designed to track the Wilshire
i5000. The manager for this portion
i of the Account is Barclays Global
Investors.
Performance
Similar to the other SBI funds which
utilize a multi-manager investment
:ructure, the Board evaluates the
performance of the Income Share
Account on two levels:
TotalAccount. The Income
Share Account is expected to
exceed the returns of a
composite of market indices
weighted in the same proportion
as its long term asset allocation.
Individual Manager. The
passive stock manager is
expected to track closely the
performance of the Wilshire
5000. The internal bond
manager for the Account is
expected to exceed the
performance of the Lehman
Brothers Aggregate Bond Index.
The Income Share Account provided
a return of 13.6% for fiscal year
1999, matching its composite index.
Over the most recent five years, the
Income Share Account has exceeded
its composite. Figure 26 shows a five
year history of performance results.
Figure 26. Income Share Account FY 1995-1999
25
· Income
Share
20
[] Composite*
15
Q~
10
0
1~5 1996 1~7 1~8 1~9 3Yr.
5Yr.
1995 1996 1997 1998 1999
Income Share 19.3% 17.6% 21.4% 21.7% 13.6%
Composite* 19.4 17.4 20.5 21.2 13.6
* 60% Wilshire 5000/35% Lehman Brothers Aggregate Bond Index/
5% 3 Month T-Bill Composite.
Annualized
3 Yr. 5 Yr.
18.8% 18.7%
18.4 18.4
25
Supplemental Investment Fund
Growth Share Account
Objective
The investment objective of the
Growth Share Account is to generate
high returns from capital
appreciation. To achieve this
objective, the Account is invested
primarily in U.S common stock.
At the close of fiscal year 1999, the
value of the Growth Share Account
was $323 million.
Management
The assets of the Growth Share
Account are invested by the external
active and semi-passive domestic
equity managers. This allocation
reflects a more aggressive investment
than is available through passive
management. Since July 1997, these
assets have been managed by the
same active and semi-passive
managers utilized by the Basic and
Post Retirement Funds in the
Domestic Stock Pool. (Prior to July
1997, the Account used only active
managers.) The Account may hold a
small amount of cash that represents
new contributions received prior to
their investment in the market and
cash that may be held by the
individual managers in the Account.
Performance
Like the Income Share Account, the
Board evaluates the performance of
the Growth Share Account on two
levels:
Total Account. The Growth
Share Account is expected to
exceed the returns of the
Wilshire 5000.
Individual Manager.
Performance objectives for the
individual managers are
described in the Investment
Pool section.
The Growth Share Account provided
a return of 17.3% for the fiscal year,
underperforming its composite index
by 2.3 percentage points. Individual
manager performance relative to
their benchmarks was mixed, see the
discussion starting on page 14
concerning the Domestic Stock Pool.
Over the most recent three years, the
Account has outperformed by 0.
percentage point annually while
Account has underperformed by
percentage point annually over ~
last five years. A five year histo~
performance results is shown in
Figure 27.
Figure 22 Growth Share Account FY 1995-1999
1 Grrx~h
Share
B~te*
35
3O
25
20
~_ 15
10
5
0
1995 1996 1997 1998 1999 3Yr. 5Yr.
Annualized
1995 1996 1997 1998 1999 3 Yr. 5 Yr
Growth Share 23.3% 24.6% 29.5% 31.2% 17.3% 25.9% 25.1';
Composite* 23.7 25ol 29.2 28.9 t9.6 25.8 25.2
* 95% Wilshire 5000/5% T-Bill Composite through October 1996.
100% Wilshire 5000 since November 1996.
26
· 5mplemental Investment Fund
T~ in'
:'sera
~on
z_-nm
r' :he
::: Cc
a~ets
va,de
Common Stock
Index Account
ire
testment objective of the
an Stock Index Account is to
te returns that track the
lance of the entire U.S.
,n stock market as represented
~/ilshire 5000. To accomplish
ective, the SBI allocates all of
amen Stock Index Account's
to passively managed domestic
· At the end of fiscal year
the Account had a market
of $389 million.
t/ma ~lement
T'e .~l. CCount participates in the
~zs~'e portfolio of the Domestic
5~ck Pool, which is managed by
~.ck
: )0
~C
ays Global Investors.
finance
~rformance objective of the
non Stock Index Account is to
the performance of the Wilshire
. T~,e SBI recognizes that the
unt s returns may deviate
:ly from those of the Wilshire
[ue to the effects of
tgement fees, timing of new
.ibutions and tracking error.
ag fiscal year 1999, the
men Stock Index Account
uced a return of 19.9%, which
0.3 percentage point above the
hire 5000. Over the most recent
: year period, the Account has
erformed the index by 0.5
entage point while matching the
x over the five year period. Total
aunt results for the last five years
~hown in Figure 28.
Figure 28. Common Stock Index Account FY 1995-1999
· Stock 30 ...................................
Index
ElVVilshire 25 ...............
5OO0
20 ...........
0
1995 1996 1997 1998 1999 3 Yr. 5 Yr.
Annualized
1995 1996 1997 1998 1999 3 Yr. 5 Yr.
Stock Index 24.3% 25.5% 29.9% 29.4% 19.9% 26.3% 25.7%
Wilshire 5000 24.7 26.2 29.3 28.9 19.6 25.8 25.7
27
Sa plemental Investment Fund ,
Ob
Ac,
fix~
is
bo~
iht
19
A(
rc
Ca
ra
fc
it
Bond Market
Account
ective
objective of the Bond Market
ount is to earn high returns from
d income securities. The Account
~vested primarily in investment-
de government bonds, corporate
ids and mortgage securities with
,,rmediate to long maturities. As
:h, it is a more conservative
estment alternative than the
:ounts described in the previous
;tions. At the end of fiscal year
99, the market value of the
count was $132 million.
e Account earns investment
urns through interest income and
)ital appreciation. Because bond
ces move inversely with interest
es, the Account entails some risk
r investors. However, historically,
represents a lower risk alternative
an the investment options that
elude common stocks.
anagement
~nce July 1997, the structure of the
.nd Market Account has included
:ive and semi-passive managers
has invested in the Bond Pool
Iilized by the Basic and Post Funds.
~rior to July 1997, the Bond Market
:count used only active managers.)
~ormance
l~e Bond Market Account is
xpected to exceed the performance
f the bond market, as represented by
ne Lehman Brothers Aggregate
lond Index. For fiscal year 1999, the
tccount underperformed by 0.3
tercentage point. For the most recent
ire years, the Account has
)utpefformed by 0.4 percentage
)oint annualized. See the discussion
)f bond manager performance on
~age 18. Total Account results for
he last five years are shown in
gure 30.
Figure 30. Bond Market Account FY 1995-1999
15
· Bond
Market 10
[] Lehman 'E
Agg. ~
.o 5
-5
1995 1996 1997 1998 1999 3Yr. 5Yr.
Bond Market
Lehman Aggregate
1995
12.8%
12.5
Annualized
1996 1997 1998 1999 3 Yr. 5 Yr.
5.3% 9.3% 11.0% 2.8% 7.6% 8.2%
5.0 8.2 10.5 3.1 7.2 7.8
29
ERFDRA. All financial institutions shall agree to undertake reasonable efforts to preclude
imprudent transactions involving the ERFDRA's funds.
11. INSTRUMENTS
Appendix A provides a listing o£investments permissible by Minnesota Statutes for relief
associations.
ERFDRA will not invest in any mortgage or mortgage related security unless a return of
principal is completely guaranteed by a federal entity.
12. DIVERSIFICATION/MATURITIES
The ERFDRA portfolio will consist of a diverse range of investments which will be held
until maturity unless an emergency or other situation arises in which it would be in the best
interest of ERFDYA to sell an investment prior to maturity.
12.1 SPECIAL FUND ALLOCATIONS
Funds will be invested using the following guidelines:
· A minimum of 25% and a maximum of 50% in non-fluctuating share value
investments. At least $50,000 should be in a savings, money market or other
liquid cash account.
· 25% to 60% in bond mutual funds.
· Zero to 35% in stock mutual funds.
· Zero to 5% in real estate funds.
12.2 MATURITY CONSIDERATIONS
In establishing a specific diversification strategy, the following general policies and
constraints shall apply:
Portfolio maturities shall be staggered to avoid undue concentration of assets
in a specific maturity sector. The maturities selected shall provide for stability
of income and reasonable liquidity.
s:XfmanceXfrinvpol, doc
ELK RIVER FIRE DEPARTMENT RELIEF ASSOCIATION
ELK RIVER, MINNESOTA
REQUIRED SUPPLEMENTAL INFORMATION
DECEMBER 3 l, 1999
A. Schedule of Funding Progress
Actuarial Actuarial Actuarial
Valuation Value Accrued
Date of Assets Liability
12/31/99 $ 1,309,219 $ 1,134,930
12/31/98 1,390,291 1,155,967
12/31/97 1,192,103 1,088,123
12/31/96 1,001,056 953,938
12/31/95 895,562 906,891
12/31/94 759,890 779,372
Funded
Ratio
115.4%
120.3
109.6
104.9
98.8
97.5
Assets in
Excess of
(unfunded)
Accrued
Liability.
$ 174,289
234,324
103,980
47,118
(11,329)
(19,482)
Pension
Benefit
per Year
of Service
2,900
2,674
2,500
2,350
2,200
2,200
Bo
Schedule of Employer Contribution
Annual
Required
Contribution
Percent
Contributed
1999 $ 82,950 100 %
1998 79,502 100 %
1997 90,308 100 %
1996 73,630 100 %
1995 43,754 100 %
1994 60,526 100 %
C. Notes to Required Supplementary Information
Valuation Date
Actuarial Cost Method
Amortization Method
Remaining Amortization Period:
Normal Cost
Prior Service Cost
Asset Valuation Method
Actuarial Assumptions
Investment rate of remm
Projected Salary Increases
Inflation Rate
Cost of Living Adjustments
12/31/99
Entry Age Normal
Level Dollar Closed
20 years
5 years
Market
9%
N/A
N/A
None
-9-
F)rm SC - 00
SCHEDULES I-II FOR LUMP SUM PENSION PLANS
REPORTING FORM YEAR 2000
DETERMINATION OF PLAN LIABILITIES & REQUIRED MUNICIPAL CONTRIBUTION IN 2001
irefighters' Relief Association of Elk River County of Sherburne
SCHEDULE I
stimation of relief association Special Fund pension liabilities for all members based on years of active service with the fire
epartment, with the regular per-year-of-service pension at $ 3575
I 2 3 4 ................................... .6. ................... 7 8
.............................................................................................................................................................. 2000 2001
F.D. Leave of To End of This Year To End of Next Year
Name Age Entry Date Absence' Years Active Accrued Years Active Accrued
Month iiiiiiii Year (in years/ Service Liability Service Liability
1. I iiii~ 1973 28 100,100 29 103,675
2. 9 i:::::!i 1976 24 85,800 25 89,375
3. 4 ::iii::1978 23 82,225 24 85,800
4. 9 i?:i 1978 22 78,650 23 82,225
5. 11 ?:i::i 1978 22 78,650 23 82,225
6. 5 ?:! 1980 21 75,075 22 78,650
7. I 11 :i::?1980 20 71,500 21 75,075
2 ::i::!::i 1981. 20 71,500' 21 75,075
8.
9. 10 !ii!ii 1981 1 18 60,703 19 65,923
10. ' 5 ? ::::::: 1982 19 65,923 20 71,500
~ :~':~':~ 60,703
11.__:. 8 ::iii::1983 17 55,770 18
12. " I ::::::::: 1985 16 51,051 17 55,770'
13. 1, i::i::i 1985 16 51,051 17 55,770
14. 6 ::::i::ii 1988 13 38,252 14 42,328
15. 6 ?;ii 1988 13 38,252 14 42,328
16. 6 ::::::: :: :: 1988 13 38,252 14 42,328
17. 9 !::i::il 1989 11 30,674 12 34,392
18. 9 :::::::::::: 1989 11 30,674 12 34,392
__ ~:::::
19. 9 ?:i 1989 11 30,674 12 34,392
20. 8 !::?:i 1992 8 20,592 9 23,810
21. 8 ?:i 1992 8 20,592 9 23,810
22. 8 ii!!i! 1992 8 20,592 9 23,810
i23' i 4 ~;i!i~;1995 6 14,657 7 17,589
24. i 4 :::i::i:: 1995, 6 14,6577 17,589
25 ...... l 2 :::::: 1997 4 9,295 5 11,941
* Fractional Years of service must be calculated to nearest full year.
* Do not enter liability in Columns 6 or 8 for any person who will receive entire pension during this year. Enter this pension
amount on Schedule II, Section 1, Line g.
* For installment liability, enter amount which will be payable after end of this year in both column 6 and column 8.
* If interest is to be paid on unpaid pensions, add interest for 1 year in column 8.
* A copy of these schedules must be presented to the City Council before August 1 each year.
Page I
SCHEDULE I - ADDITIONAL ACTIVE MEMBERS
~~1 ..... :,'UUU gUU
~ 2 3 ~ 5 6 7 . 81.
I F.D. Leave of To End of This Year To End of Next Year
I Name Age Entry Oate Absence Years Active Accrued Years Active Accrued
[ M°nthli i Year in years'~ Service Liability Service Liability
.~e. "! A ii:: 1999 ' 2 4,4,33 3 6,792
~ ! 4 ii:: 1999 2 4,~.33 :3 6,792
2~. / ~ ::::i 1999
~ I ~ i::i: 2ooo 1
]2. [ ~ ~::?: ~ooo ~ ~ ~,~; 2 ~.~
~. [ i::l
~ J ::~ ' o
]7 J ~ '~:: o o o o
~s. J :::.::
~. I ~ o o o
,o. J ~:::: . o o o
~. j ~
z. :-~:.~ ,
,~. J : :.:? o o o O'
$~. J , ~::~:. o o o .,
a I ?. o o o
$6 J ~ 0 0 0
~. / [::~ : o
~8. J ~::::~
~o. I i~ . o o o
:2. ::~
~4 :~: , 0 , 0~ 0 OI
55. I ~:.~ 0 0 0 00
~. [ ~:::: o o o
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Page 2a
1
Name
Deferred Pensions
)eferred ms:
)aid Installments
SCHEDULE I - ADDITIONAL MEMBERS & TOTAL LIABILITIES
3 3a
Entry Separation
Date Date
4b 4c 6 8
Benefit Deferred Deferred
Leave Level at Non- Pension to pension to
of time of Forfeitable the end of the end of
4/1/75 4/1/95
2350 100%
62,234 65,346
62,234 65,346
id:!i~stal!
Early Vested Pensions
10/1/81
9/1/89 L/1/96
8/1/83 ~/6/99
2100 64%
2350 44%
2900 80%
14,784
6,204
34,800
14,784
6,204
34,800
{~6t~i: bf~i£~t!¥!.v, es~tect ipens~ons:::
u se the columns provided to show calculations.
Example, 4a x 4b x 4c = deferred pension amount.
55,788
2000
'otal of Regular Pension Liabilities
From pages i and 2a
1,263,618
;otal of Deferred, Unpaid, and Early Vested Pensions
If Any, from page 2b (above)
A, Accrued Liability Through Next
Year 2001 (total, colur .................................. >
B. Accrued Liability Through This
Year 2000 (total, colur ............. >
C. Subtract Line B from
Line A (normal cost)
118,022
1,381,640
55,788
2001
1,379,808
121,134
1,500,942
119,302!
Schedule II
;ction I Determination of Projected Net Assets for the year ending December 31,
S~ ecial Fund Assets at December 31, 1999
(See Ending Assets in Reporting Form - 1999)
Pr3jected Income to December 31, 2000
a. Minnesota State Aid
(Use 1999 amount, exclude supplemental)
b. Municipal (independent fire) Contributions
c. Donations (List )
d. Interest and Dividends
e. Net appreciation (depreciation) in fair
value of investments
f. Other income (Includes Supplemental)
(List - )
Total
Projected Assets plus Income December 31, 2000 (line 1 + line 2)
F rojected Disbursements through end of year
g Pensions (If listed here, don't include on Schedule I) $ 106,718
h Other benefits $ 0
Administrative $ 4,500
Total
rojected Assets at end of year (line 3 minus line 4)
1 $ 1,309,219
$ 61,600
$ 21,350
$ 0
$ 15,000
$ 84,175
$ 3,000
2 $ 185,125
35 1,494,344.
4 $ 111,218
Normal Cost (Schedule I, Page 2b, Line C)
Calculated Administrative Expense (1999 Reporting Form Adm. Exp. $
Less:
j. Minnesota State Aid $ 61,600
k. 5% of line 5 $ 69,156
I. 10% of line 8 $ 149
Total Subtractions
/lunicipal Contribution (line 9, plus 10 minus 11)
If $1.00 or greater, certify to municipality before August 1, 2000,
If negative number, no contribution is due.
* Go to Section 4 if Deficit
75 1,381,640
8 $ 1,486_
Demrmination of Munic~al Contribution ~fSurplus
9 $ 119,302.
3,121 xl.035) 105 3,230...
11 $ 1.30,905
12 $ (8,373!.
Section 3
Go to Section 3 if Surplus
;urplus or (Deficit) (Subtract line 7 from line 6)
000 Accrued Liability (Schedule I, Page 2b, Line B)
;ection 2 Determination of Projected Surplus (Deficit) as of December31, 2~
6 $ 1,383,126
=rojected Assets (line 5)
55 1383,126_
How'$ Your Fire Relief Association?
By Eric Willette
hen asked about the local
volunteer fire relief associa-
tion, many city officials
simply shrug their shoulders.
The day-to-day operations
of the association are ably
handled by the fi,refighters.
Much of the city s annual
financial obligations to the fund are
covered by state aid. Pension and
investment issues confuse many
people and bore others to tears.
The financial health of your
local fire relief association fund is
just as important to your city budget
as it is to your volunteer, fire fighters.
While having a volunteer, rather
than a full-time, fire department may
afford substantial savings, your city is
ultimately responsible for the cost of
supporting the local relief association.
And, if you are an ex-officio trustee,
you have a fiduciary responsibility to
the fund and can be held personally
liable for the decisions of the board.
In most cases the mayor, the clerk,
and the fire chief are ex officio
members of the relief association
board of trustees. They have full
voting powers but cannot be officers
of the association. Trustees also have a
statutory obligation to make reasonable
efforts to obtain the necessary skills and
knowledge to carry out their duties.
Measuring financial health. The
relief association fund's annual financial
requirement is calculated by making
estimates of future pensions that the
fund is obligated to pay to volunteers
and the value of assets in the fund
(contributions to the fund plus invest-
ment returns). If state aid does not
cover the annual financial requirement
for the fund, your city must levy for
the difference.
Many factors determine the financial
health of the relief association and the
need for city contributions including
member benefits, state aid payments,
and investment returns. Member
benefits are the value of pensions
promised to past and current volun-
teers. When setting benefit levels,
trustees should consider the depart-
ment's need to attract and retain
volunteers, as well as how much the
fund and the city can afford to pay
out in the long tenn. If the promised
benefits exceed available revenues,
the city obligation could increase or
a long-term deficit could be created.
Similarly, the city obligation could
increase if current state fire aid is cut or
does not grow with benefit increases.
While state fire aid has been relatively
stable over the past few years, some
legislators are interested in cutting
this and other pension-related aid
programs.
Finally, the returns on the fund's
investments can dramatically affect the
financial health of the fund and the
need for municipal contributions to
cover expected payments. In fact, the
investment returns realized by local
funds over the past few years are one
reason state fire aid is being scrutinized.
Some critics, including a few legisla-
tors, believe many local funds' invest-
ment strategies are too conservative
or too risky. They believe if state
are cut and more of the annual
financial requirement is paid locally,
trustees will have a greater incentive
to maximize investment returns
without undue risk. They conclude
that greater investment returns could
lead to higher benefit levels at a
reduced cost to both the state and
the city.
Investment policy must be prudent.
State law requires associations to have
a written policy that spells out its
investment strategy. This policy guides
the fund's asset allocation; that is, how
investments are divided among bonds,
domestic stocks, international funds,
and other types of investment.
When setting the investment policy
and in performing all other association
duties, trustees are required by statute
to follow the prudent person standard.
The statute states trustees must: "act
in good faith and shall exercise that
degree of judgement and care, under
the circumstances then prevailing, that
persons of prudence, discretion, and
intelligence would exercise in the
management of their own affairs, not
for speculation, considering the
probable safety of the plan capital as
well as the probable investment return
to be derived from the assets." Not
surprisingly, there is wide variation in
interpretation of what constitutes a
prudent investment policy.
Recent legislative scrutiny has
compared the investment returns of
local associations to the returns of the
professionally-managed state plans and
the state board of investment. Some
legislators think many associations that
invest more money in bonds than
stocks, for example, are too consbrva-
tive in their investment decisions.
Legislative proposals for increasing
local investment returns include
encouraging more fund investment
through professional money managers,
encouraging or requiring local fund
investment through the state board of
investment, and setting up a voluntary,
independent investment board for local
funds.
Ex officio trustees must be involved.
Whatever your trustees adopt as
prudent investment policy and benefit
levels for your association, it is vital that
your ex officio trustees are involved in
the decisions. Remember, any financial
shortfall experienced by the fund falls
back on the local property taxpayers.
And, all trustees can be held individu-
ally liable for a breach of fiduciary
responsibility by the board, even if they
are not actively involved. ~'
Eric Willette is legislative policy analyst
with the League of Minnesota Cities.
SEPTEMBER 1998 MINNESOTA CITIES